Serono sells majority share to Merck

Serono CEO Ernesto Bertarelli can now concentrate on other things Keystone

The Swiss Bertarelli family has agreed to sell its 64.5 per cent stake in the biotechnology company, Serono, to German drugmaker Merck.

The deal values the Swiss firm at SFr16.1 billion ($12.9 billion) and gives Merck 75.5 per cent of voting rights in Serono.

The new company will be called Merck-Serono and will continue to have its headquarters in Geneva. The United States base will remain in Boston.

Based on 2005 figures, the new company will have sales of SFr12.2 billion.

The deal brings an end to a long period of uncertainty over Serono’s future. The firm last December hired Goldman Sachs to find a buyer. When little interest was shown, it then changed tack saying it would start making acquisitions.

“The deal makes sense, and it fits the strategy,” Serono’s chief executive officer, Ernesto Bertarelli, said. “Both companies need to increase their size to be able to compete in the global pharmaceuticals market.”

Bertarelli added that all takeover plans that the company had been pursuing were now on hold. “We have a number of discussions ongoing [but] obviously we will have to consider those discussions under this new light.”

Merck’s decision to leave Serono’s headquarters in Geneva likely helped seal the deal, said Bob Pooler, an analyst with Lombard Odier Darier Hentsch.

“If a big pharma company had bought it, there would have been a big chance that the Geneva headquarters would be decimated,” Pooler said.

Pooler said Serono would become part of a bigger company with a wider pool of products which solves its long-term problem of how to reduce its dependency on Rebif, its best-selling drug.

“For Merck, it improves their global reach and gives them a Swiss base. Think of the tax savings to Merck for registering a lot of their intellectual property not in Germany but in Switzerland – that makes a lot of difference.

“Combined, the two companies are a lot stronger. It is a very nice fit and a good solution.”

Zurich Cantonal Bank analyst Yasmin Ersan does not see many obvious synergies, but believes the deal does represent good business for Serono shareholders.

Good deal

“It is a good deal because the price premium is 20 per cent higher than shares closing on Wednesday and is 30 per cent higher than the 30-day average. This represents a much better share price than if Serono were to go it alone.

“From the point of view that they will be integrated into a larger organisation that is world wide, Serono should benefit.”

The Geneva-based company is in the business of developing proteins, antibodies and small molecules to treat serious medical conditions.

It is active in the following therapeutic areas: neurology, reproductive health and growth hormones.

Its leading product is the drug Rebif, which treats multiple sclerosis (MS); worldwide sales reached nearly $1.3 billion in 2005.

Total revenues in 2005 increased by 5.2 per cent to $2.586 billion, of which sales were $2.339 billion.

Leading position

The deal will give the Darmstadt-based maker of pharmaceuticals access to new markets thanks to Serono’s deal with Pfizer, the world’s largest pharmaceutical company, to market Rebif.

“This acquisition transforms Merck’s pharmaceuticals business and creates a leading position in the world of biologic medicines,” Merck Chief Executive Michael Roemer said. Merck shares fell 5.1 per cent to €74.34 (SFr118) in Frankfurt trading.

Merck, which also sells the Erbitux cancer drug outside the United States, said its plan to acquire Serono includes a capital increase valued at between €2 billion and €2.5 billion. The company said it would finance the deal with cash and bridge loans.

The Merck family, which holds more than 70 per cent of the company, will provide as much as €1 billion for the deal.

Analysts said the deal is part of Merck’s strategy to stay competitive. Many mid-sized drug companies have mulled combining their operations and research with others in an attempt to keep pace. Merck has been seeking an acquisition in part to line up new products to complement its own, including Erbitux and the cardiovascular treatment Concor.

swissinfo with agencies

Key facts

Serono was founded in 1906 in Rome by Cesare Serono and was originally called the Serono Pharmacological Institute.
The company first made its mark producing fertility drugs.
In 1977 the company was moved to Geneva by then chief executive Fabio Bertarelli.
Current CEO Ernesto Bertarelli took charge in 1996.
Bertarelli became a household name in Switzerland and yachting circles when his Alinghi boat won the America’s Cup in 2003.

In brief

Serono is in the business of developing proteins, antibodies and small molecules to treat serious medical conditions.

It is active in the following therapeutic areas: neurology, reproductive health and growth hormones.

Its leading product is the drug Rebif, which treats multiple sclerosis; worldwide sales reached nearly $1.3 billion in 2005.

Total revenues in 2005 increased by 5.2 per cent to $2.586 billion, of which sales were $2.339 billion.